Institutional investments managed to cross the USD 5 billion mark in 2020, due to large portfolio deals worth USD 3.2 billion during the last quarter of the year. However, 2021 witnessed more board-based recovery with 31 deals during the first nine months as against 19 deals during the same period of 2020. Unless some large portfolio deals are not inked at the end of the year, annual investments are expected to be in the USD 3.8 - 4 billion range in 2021. The year 2022 is expected to cross USD 5 billion mark, which was witnessed by the Indian real estate annually during the 2017-2020 period, according to JLL's Outlook 2022.
Investors, apart from the office sector, also allocated fresh capital in the residential segment which staged a smart recovery, while warehousing and data centers continued to attract investments. The retail sector witnessed capital commitments through investment platforms that remain bullish on its growth prospects.
Radha Dhir, CEO & Country Head, India, JLL, said, "The performance of institutional investments in the Indian real estate during 2021 can be summed up in one theme - 'increasing immunity to uncertainty.' Investments almost doubled Year-on-Year during the first nine months of 2021 at USD 2.9 billion. India's third REIT was listed in February 2021 which was oversubscribed by 7.9 times indicating investor appetite. REIT players continued to raise low-cost debt and use the proceeds to acquire assets at attractive valuations during the year. As the second wave receded, the office market also showed signs of recovery. The net absorption for Q3 2021 at 5.9 million sq ft, was the highest in the year to date. Given the transaction activity recorded so far in Q4, the last quarter is expected to be the strongest."
"The Indian economy is expected to gain further strength and broad-based investment growth on the back of low-interest environment, continued monetary stimulus, improving revenue visibility across asset classes, and inclusive growth policy. Listing of REITs, distressed opportunities, asset diversification, high growth data center, and logistics segments will drive the investment momentum in 2022," she added.
"Real estate sector remains a critical cog in the wheel in India's economic growth story. The sector is well on its way to recovery and reaching pre-pandemic levels. While market recovery remains on track, it will not be a straight line across the asset classes, as each finds it is next to normal. The office sector is likely to clock a 30-35% Y-o-Y growth in net absorption levels in 2022 but will remain much below the highs of 2019. The residential segment is expected to reach pre-COVID quarterly sales volumes in 2022 and given the strong momentum may also match the pre-demonetization quarterly sales in the latter half of 2022. The key factor in the pace and rate of recovery will be the prevailing conditions as there is a looming threat of new variants which may disrupt the growth trajectory," said Dr. Samantak Das, Chief Economist and Head of Research & REIS (India), JLL.
The residential segment's average quarterly sales expected to reach pre-Covid levels
The residential sector has witnessed green shoots of recovery and is expected to gain further momentum in 2022. Renewed buyer confidence, reduction in home loan rates, incentives & discounts by the developers have been instrumental in supporting the residential market recovery. The Jan- Sept 2021 period recorded a healthy quantum of sales and launches, which are inching towards those of the pre-COVID era. Sales of more than 77,000 residential units were recorded in the first three quarters of 2021, an increase of 47% compared to the same period last year. New launches of around 93,000 units were recorded, indicating an increase of 38% compared to the same period last year.
The analysis suggests that 2022 will register 20%-25% annual growth in sales as compared to the previous year due to affordable synergy and other positive market conditions. With strong end-user demand and conducive market conditions, average sales volume is expected to reach the average quarterly sale of 35,926 units recorded in the pre-covid year of 2019. If prevailing economic conditions remain positive, the average quarterly sales by end of 2022 may even match the first three-quarters of the 2016-pre-demonetization era (39,891 units).
The buyer preference towards plotted developments and independent floors is expected to be reflected in more launches in this category. The increased demand momentum, limited inventory in select segments, and rising input costs are expected to result in a 5-7% price increase in select residential micro-markets. At a macro-level, prices are otherwise expected to remain largely stable, with the main objective of developers focused on supporting the current momentum in sales activity and driving it further.
India's office market is poised for a strong 30-35% annual growth
India's office real estate markets are expected to record 30-35% annual growth in 2022 on the back of growing traction for the tech industry in a time of increasing tech spend and digital transformation from global corporates. India's increasing role in the innovation and R&D sphere will also drive more Global Capability Centres to set up operations even as existing ones expand on the back of India's talent base and overall real estate costs. Demand from other sectors such as BFSI and Consulting is also likely to show some improvement even as other sectors such as e-commerce, manufacturing, and healthcare gain more strength. Additionally, demand for managed spaces will provide a push for the continued growth of the flex space segment which is expected to account for about 15-20% of all leasing activity in 2021 and continue its strong showing in 2022 as well. Enterprise leasing in the flex segment is expected to be near 60,000 seats by end-2021, which is more than double the number on a Y-o-Y comparison. 2022 is expected to clock similar performance as flexibility and cost optimization remain key factors driving portfolio strategy for occupiers. Rents are likely to remain stable with an upward bias, particularly in prime office markets driven by mark-to-market renewals and new deals in premium quality projects.
While the future of work is still being formalised with the advent of hybrid work employers are keen to bring back the workforce to the office. Despite the flux, occupiers had greater clarity in 2021 on their real estate portfolios and strategies.
Expect record-high 277 MW capacity addition to Indian Data Centre Industry
The convergence of data protection, industry-friendly regulations, the Government's digital initiatives, and investments are going to give a structural push to the industry. This coupled with the rollout of 5G, ever-rising digital usage, increasing footprint of global DC operators and cloud players would usher in another high growth year for the Indian DC industry in 2022. The Indian Data Centre industry is poised to add a record high 277 MW capacity in 2022, requiring 3.2 Mn sq ft of real estate space. The immense growth will also lead to parallel trends of efficient energy usage, green energy investments, DC-ready skilled manpower, and the growth of data-driven emerging segments.
Indian Data Centre (DC) industry which stood at 499 MW* as of H1 2021 is expected to record another strong year of demand growth with commensurate supply. The global sustainability movement has led to cloud players setting ambitious renewable energy targets. This has been reflected in their choice of DC facilities that follow sustainability practices. Most DC operators tied up with renewable energy players during the year. Some players are reducing carbon footprint, right from design, building material, construction, and at the operational stage. Data centres being technology-intensive has led to rising demand for skilled manpower. India has a vast pool of technically trained resources that can be reskilled for the requirements of the DC industry. Bengaluru, India's leading tech city, is being evaluated and chosen by Global DC players to set up the Global center of excellence and employ IT professionals.
* MW indicates - IT power load